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OPEC+ will continue with its plan to cut down on production and reduce supply, but did not change its target notwithstanding further cuts.
The Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC oil-producing countries, known as OPEC+, maintained its previous oil production target for the year. The 23 member countries of the organization are sticking to the target regardless of Saudi Arabia’s further reduction.
Back in October, OPEC+ decided to reduce production supply by a cumulative 2 million barrels per day (bpd). In addition to this cutback, several members announced in April, further individual reductions beginning in May. For instance, Russian Deputy Prime Minister Alexander Novak announced a voluntary target reduction of 500,000 bpd until 2023 ends. Other announced cuts were Kazakhstan’s 78,000 bpd, Oman’s 40,000 bpd, and Algeria’s 48,000 bpd. Kuwait and the UAE also said they would reduce production by 128,000 bpd and 144,000 bpd, respectively. According to an unnamed source, Gabon also decided on a voluntary 8,000 bpd reduction.
The energy ministry in Saudi Arabia has now confirmed an additional production cut of 1 million bpd in July. Although it plans to do this for 1 month, the ministry said the reduction period is extendable. Interestingly, Russia also decided on a further 500,000-bpd cut, and extended all reductions until December 2024. Novak confirmed this after the OPEC+ meeting that took place in Vienna on Sunday.
Following the announcements in April, the US was displeased because a reduction in output increases oil prices. Washington believes that the general growth of the world’s economies would take a hit from the reductions because lower prices are better. The US also supposes that the individual and OPEC+ reduction targets would help Russia’s President Vladimir Putin continue its war on Ukraine.
OPEC+ Continues with Target Reduction despite US Displeasure
Regardless of the displeasure from the US, the price cuts are likely to continue. However, UAE oil minister Suhail al-Mazrouei admitted that Moscow’s official numbers contradict independent Russian analysts’ estimates. Speaking during a press briefing, al-Mazrouei said:
“Some of the things that we have seen from Russia on a technical basis just… [don’t] add up from some of the independent sources, and we will be reaching out to those independent sources.”
Novak has said the market is somewhat balanced and experiencing increased demand. The Deputy Prime Minister’s comment suggests that Russia and OPEC+’s decision may not seriously affect the market. However, he assured that the alliance would actively follow news on interest rates for pointers on fuel consumption. Novak believes an increase or decrease in interest rates will more accurately indicate the financial clime regarding investments and fuel demand. Furthermore, Novak said OPEC+ could rethink its decisions if things change.
Regardless of the macroeconomic factors, the UAE wants an increase in its production baseline, notwithstanding the target reductions. On the other hand, members like Nigeria and Angola have struggled to meet their charged quotas for many reasons, including underinvestment and subversion.